PPP Loan Forgiveness: The Ultimate Guide

Increase your chances of PPP loan forgiveness with up-to-date simplified guide covering:

How to maintain eligibilty for forgiveness and recordkeeping requirements

How and when to apply for forgiveness

Spending and expense tracking checklist

The New Rules on PPP Loan Forgiveness.

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PPP Loan Forgiveness

The SBA has issued guidelines for PPP loan forgiveness criteria. Learn how you can determine if you qualify and find some loopholes you need to take advantage of right now before its too late.

The New Rules on PPP Loan Forgiveness.

Since Covid 19 tightened its grip on the country, and it really was only a few short months ago, legislation and rulings have moved at a baffling speed in order to keep up with the crisis. The Paycheck Protection Program or PPP was brought in on the 27th of March to protect small business payroll and to ensure that everyone in stayed employed and paid on time. As well as being crucial for supporting people who would otherwise not be able to manage on a loss of income, it was designed to help employers maintain staffing levels so that once the crisis was over the business would still be fully functional.

PPP is a loan paid to businesses owners and it was designed to provide a wage for employees for 8 weeks. It has been administered by the Small Business Administration (SBA) using a range of approved lending establishments such as banks, and from the beginning all borrowers were advised that the situation would be reviewed as the crisis continued.

Now, the 8 weeks period is reaching the end and although certain industries such as restaurants have requested an extension of up to 24 weeks this is so far unresolved. However, the good news is that the SBA has issued guidelines on loan forgiveness so if you fulfill the criteria, you will not have to pay the loan back.

The figures are eye watering. According to the SBA, over 4.4 million PPP loans have been awarded at a cost of more than $511 billion. Over ¾ of all the loans awarded were less than $100, 000, although the maximum cap was set at $10 million, and some PPP loans have yet to be deployed. One thing is sure; this is certainly a lot of money to be paid back! So let’s take a look at the rules on PPP forgiveness and find out how to qualify and hopefully not have to pay back your PPP loan.

Are you eligible for PPP forgiveness?

First up, you need to prove that you used the PPP for the following purposes:
• For the payroll, so wages and salaries, employee sick leave or other benefits including holiday pay and health insurance; these are all covered by the PPP loan.
• Rent on premises as long as this was in operation before 15th February 2020.
• Utility payments on your business premises such as gas, water and electricity bills.
• Mortgage interest as long as the mortgage was in operation before February 15th 2020

Although you may have used your PPP for rent and utilities as above, you will only qualify for loan forgiveness if at least 75% of the loan was used to fund the payroll. The dates are also important.
The PPP loan covered all eligible expenses over an 8 week period which began on the first day that your payment was first made by your lender. Expenses prior to this will not be forgiven as the loan was not in operation but after that date your payroll is covered by PPP. One of the good points about PPP is that there has been no need to disrupt the usual pattern of the payroll. The final payment following the 8 weeks may have fallen outside the qualifying time period but you will be still covered.

Secondly, to be eligible for forgiveness, it is crucial that you have kept your employees on your payroll throughout the period.

How to check that your payroll meets the requirement for PPP forgiveness

To find out whether you qualify for forgiveness you need to carry out the following calculation by checking your payroll records.

Step 1. First establish;
A: the number of full time employees over the 8 week period following the initial PPP loan.
B: the number of full time employees you had this time last year. The period runs from February 15th 2019 until June 30th 2019
C; the number of full time employees working for you between January 1st 2020 and February 29th 2020.

Step 2. Take the A figure and divide this by B and then do this again by dividing the figure of C. It is important to note that if you are a seasonal employer divide the number only by using the figure in B.

Step 3. Use the largest figure you obtain for your results.

  • If you get a number equal to or larger than 1, this shows that you have successfully maintained your staff levels throughout and you will qualify for full PPP forgiveness.
  • If the number is lower than 1 (and has gone into negative figures) this shows that you did not maintain your staffing levels and your PPP forgiveness will be calculated proportionally.

Of course there may be staff losses throughout the period that are beyond your control so you may be eligible for claiming an exemption on this ruling.

Remember that you cannot put your claim in for forgiveness until after June 30th 2020.

Exceptions and exemptions

You may have laid off staff or put them on furlough and now want to rehire them. If your employee has rejected this offer, you need to show documentation that proves that you have done what you can and that the employee has rejected it. Evidence should be composed of the following:
• You made a written offer to rehire the employee
• Wages, hours and salary must be identical to the employees position prior to being laid off
• Written confirmation from the employee, rejecting your offer.

Other exceptions include the following:
• The employee was fired for a specific reason
• The employee resigned
• The employee requested a reduction in hours.

If you have a discrepancy in your employee numbers but can prove that the reasons for this are beyond your control, you may be able to qualify for full PPP loan forgiveness. If you fail to prove this, your loan forgiveness will be calculated proportionally.

Maintaining salaries and pay requirements.

This all gets extremely complicated but the point to remember is that to qualify for PPP forgiveness you must prove that you have been maintaining your payroll at least 75% of normal operation. So if an employee’s pay has been reduced to less than 75% of their earnings when compared with their most recent quarter prior to lockdown, your eligible forgiveness is calculated accordingly. It will be reduced by the difference between usual pay and the lower figure paid during the 8 weeks period.
This ruling was initiated in order to make sure that employers did not obtain a PPP loan and then either keep the money or use it for unauthorized purposes. The whole point of this loan was to keep the payroll in operation and protect business owners and staff, so you will need to prove that you have kept to these rulings.

You can still apply for full loan forgiveness if you take action now.

If you undertake the following two actions to improve your payroll eligibility, you may qualify for forgiveness.

Loophole 1: Reinstate pay to full amount

If you reinstate pay to the full amount as before (the missing 25%) you can still qualify for full loan forgiveness if you do this before June 30th. So if you have reduced pay to less than 75% of the usual salary, increasing this and putting it back to pre lockdown rates will help you qualify for full forgiveness.

Loophole 2: Rehiring staff and reinstating your head count.

In addition you can reinstate your head count by rehiring staff and as long as you act before June 30th.

You can only claim forgiveness on the payroll expenses and eligible business expenses.
It is also important to remember that you can only claim forgiveness on the money that was used to fund the payroll and eligible business expenses. If you used the full loan to fund the payroll and you have maintained head count and wages, you should be eligible for complete forgiveness.

However, if as so many businesses have done, you have used 25% of the money on other expenses such as utilities and rent, this part of the loan will also be forgiven. Non payroll expenses are limited to 25% of the total loan and you cannot claim relief on your payroll expenses, if you did not pay for them.

How to submit your claim for PPP forgiveness

To submit your claim for PPP forgiveness, you need to apply to your lender. Remember that you cannot apply for loan forgiveness before June 30th.

Where do I get the Loan Forgiveness Application?

You can download the Loan forgiveness application form via the SBA. All claims are calculated on an individual basis, looking at all your documentation, employees’ earnings, dates and eligibility. Because PPP has been awarded by a range of different lenders, there may be extra requirements too.

Documents required for submitting a claim for PPP forgiveness.:

You will need to submit all the relevant documentation so that the loan provider can verify your claim. You will need to submit documentary evidence to support your claim. This will include:
• Reports from your Payroll provider
• Tax filings (the form number is 941)
• Filings from your state authority regarding income, payroll and unemployment insurance
• Filings on health insurance, sick pay, pension fund contributions
• Documentation that proves your other eligible payments such as utility bills, rent payments etc
• Account statements
• Any additional information from individual employees such as their written confirmation that they have refused your job offer, as mentioned above.

Claiming PPP forgiveness if you are self employed.

You may be able to claim forgiveness on your loan if you are self employed, even though you do not have a payroll. This is via a program called owner compensation replacement. The forgiveness on the loan is intended to replace the profits you have lost because of the Covid crisis and as with all PPP loans it has run over an 8 week period. There are calls for this to be extended but so far this has not been finalized.

Your PPP loan was based on your average net profit for 2019. This was calculated by dividing your annual net profit by 12 in order to get a monthly figure and by adding 2.5 %. Again the important point to remember here is to make sure that your business records and documentation is all in order because your lender will need to see evidence of your usual turnover and how the Covid crisis has impacted your business.

If you are not approved for forgiveness, what can you do?

Whether you are a business owner looking for forgiveness on the payroll or you are self employed and trying to claim under the owner compensation replacement rulings, you do have some recourse if you are not approved for forgiveness.
You may be able to submit further documentation to support your claim – each claim is carefully processed individually so you may find that adding more evidence or proof will be enough to change the decision. If you try this and still can’t qualify for full forgiveness, the balance of the remaining loan will accrue interest at 1% over the remaining two year period. You can pay this off at any time and you will not be charged anything extra for early payment. You will benefit from doing this to avoid the admittedly low interest payments.

It is important to remember that just because you may not qualify for full forgiveness, you will be able to qualify for partial forgiveness so it is certainly worth proceeding with your claim even though you may not be eligible for the full amount.

How To Get Help With The Documentation and Application

As you can tell, the process is not simple and you certainly want to make sure that it is done right. A mistep could mean that you end up paying back money you could use to recover and regain your business. If you need help determining whether or not you are eligible and or prepare your required documents and complete your application , our experienced CPAs at Valor CPAs can help. Schedule a FREE consultation call here with one of our experienced CPAs at a time convenient to you.

Something Wasn't Clear?

Feel free to contact me, and I will be more than happy to answer all of your questions.

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